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Sunday, July 13, 2014

Raise the sales tax again ... why not go ahead and make it 100% now?

MEMPHIS, Tenn. — Sources tell WREG-TV the heads of the fire and police associations in Memphis have proposed raising the city sales tax to restore full healthcare benefits. The head of the Memphis Fire Association however told WREG that is not something that will go forward and be proposed to the public.

Current city employees and some retirees will pay 24% more for healthcare, while some retirees will lose their entire insurance subsidy. We are told there has been a proposal for a tax hike by half a cent to 9.75%. That rate would put Memphis equal with several surrounding municipalities which raised their sales tax to fund new schools.

If the proposal were to moved forward, voters would have to approve it. There are estimates the hike could raise more than $45 million per year. A similar change in the sales tax, to fund pre-k, was defeated last November.

The Segal Company, a human resources consulting firm, found the city pension is underfunded by $467 million. That contradicts a report commissioned by the firefighters union which put the number at $301 million and a report done by PricewaterhouseCoopers which put it at $682 million.

As of July 1, the State of Tennessee requires local governments to contribute 100% of the cost, determined by outside agencies, needed to keep their pension funded.
Oh those poor police and fire-fighters! It's possible if I don't take a half-percent pay-cut that they could lose their 100% paid for insurance and pension plans. What an injustice that would be! Never mind that the privately owned company that I work for doesn't even have a pension plan. never mind that my family's insurance plan gets crappier every year, and for this ever-crappier insurance, I pay more and more and more every year. But never mind all of that. Why should my family's suffering have any bearing whatsoever on the city's decision to forcibly extract even more money from my own family's ever tightening budget?

I can tell you from personal experience that everything costs so much more these days than it did just six years ago. I haven't gotten a raise in those six years, so effectively I've already taken a 30% pay-cut. Now they want to make it 30.5%. And the best thing of all is that I have essentially no power at all to affect this decision. It seems like every year the city has another reason to raise the sales tax. In fact it seems like it was just last year when they wanted to raise sales tax to pay for pre-kindergarten.

Guys, I want to talk for a moment about simple math and simple economics for just a minute. I'm sorry if the following explanation gets a little dry and boring but I'll try to be brief.

For simplicity's sake let's take one guy with a family of four making $50,000 per year. After taxes that's $42,617.64. So you say, that's not so bad. 15% off the top for federal tax and social security. In other states there would be state income tax also deducted. But wait! There's less! After subtracting sales tax at 9.25% our seemingly fairly successful middle-class worker takes home only $37,875.00.

People who work for the city of Memphis say...well yes everything costs more. Rent, utilities, food, clothing, utilities, healthcare, everything costs more. So we need more money. Yes, but the city budget is paid for primarily with sales and property taxes. If food costs more then obviously the city gets more sales tax revenue. If a $10.00 ham has a sales tax of $0.92 and the grocery store increases the price of that ham to $15.00, then the sales tax collected is $1.39. This represents a 50% increase in the price of the ham and in the revenue generated from its sale. No matter how much prices rise, the city should still be floating like a boat rising higher no matter how high the waters rise.

Therefore if rent costs more it's because property costs more, meaning ever-higher property tax revenue. If food costs more it means increased sales tax revenue from its sale. If utilities cost more it means the city brings in increased revenue from taxes imposed on utilities. There's a direct one for one increase in revenue vs. prices no matter how much prices rise. Memphis takes the same percentage of money from every resident and visitor who purchases goods and services in the city.

I'm trying to explain that the excuse of inflation to explain raising sales tax is a low-down rotten stinking good-for-nothing excuse and nothing more. If everything costs more then that means the city makes that much more in tax revenue.

So why is there a budget shortfall? Is it perhaps because the city of Memphis promised pie-in-the-sky pensions for every city employee who puts in their 10 years? Is it perhaps because the city of Memphis promised pie-in-the-sky lifetime health-care for every city employee who puts in their 10 years?

A 20 year old man works for the city for 10 years and becomes fully 'vested' which means he qualifies for full retirement benefits from the city. He goes to another city and does the same thing, and another and another. He retires at age 65 with 4 pensions plus his social security benefits. Every year thereafter he'll cost taxpayers considerably more to sit on a couch and watch the TV than he ever did while he was working. Some cities or municipalities require a different period of time to become fully vested but the effect is the same to a greater or lesser degree. Public sector employees frequently if not ubiquitously retire with multiple full-pensions.

If you want to know why cities and states keep increasing the percentage of money they take it's because with advances in medicine—medicine paid for by the tax-payer—retirees live to greater and greater ages. This has an exponentially multiplying effect on city budgets. If people live ten years longer they cost the city double. twenty years longer and they cost the city quadruple.

I have a great solution to this pension problem. Do the same thing health insurance companies do. If you have two policies covering the same person then one takes precedence. The insurance companies may quibble amongst themselves about which policy takes precedence but still and all, only one insurance company pays the bill, not both. Public sector pensions should follow the same rules. You have three public sector pensions? Sorry, but only one will be paying you. In the interests of fairness, that paying pension should at least be the highest paying one. Don't forget you still get Social Security, so cheer up officer Bob.

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